Currently, there is a law that requires a person providing loans on a regular basis to apply for a banking license from the central bank. This requirement is applicable to both local and offshore lenders. However, in practice, we are unaware of any circumstance where the regulator enforces this rule on offshore lenders. The rule does not apply to the arranger, facility agent or security agent.

Please note that our responses are prepared in the context of cross-border lending by an offshore lender to customers in Cambodia.

There is a risk of a lender, arranger, facility agent or security agent being deemed to be carrying on business in Cambodia due to the execution, delivery, performance or enforcement of the finance documents because of the broad definition of "business" under the Law on Taxation dated 16 May 2023 ("Law on Taxation"). The legal meaning of "business" is "economic activity with the aim of deriving income." The term "economic activity" is defined broadly under the Law on Taxation as the regular, continuous or from time-to-time activity of a person, whether or not for profit, in relation to the supply of or with the intent to supply goods or services to another person for the purpose of obtaining a benefit. However, there is no legal definition of "benefit." Entering into finance documents in a commercial situation should always involve a benefit and would, therefore, technically fall within the definition of "economic activity." Notwithstanding this, the risk is low in our view because we have never seen the execution, delivery, performance or enforcement of finance documents being deemed "economic activity." However, if a lender, arranger, facility agent or security agent is deemed to be performing an economic activity, it must register with the Cambodian tax authority within 15 days following the commencement of those activities. In this case, there is also a risk that the entity will also be deemed to have a permanent establishment (PE) in Cambodia. The Cambodian tax authority decides on this matter on a case-by-case basis.

If an entity is deemed to have a PE, any income generated from a Cambodian source will be subject to a 20% tax on that income (known as corporate income tax in other countries). However, even if, in some cases, a PE is deemed to exist, to our knowledge and to date, the Cambodian tax authority has never enforced the tax income laws. It currently relies entirely on the withholding tax mechanism (for example, payment of interest to a non-resident taxpayer is subject to withholding tax at the rate of 14%). However, the approach of the Cambodian tax authority may change. Therefore, it would be prudent to obtain current advice before proceeding.